Saturday, January 28, 2017

Socialist Regional and Bilateral Relations With Cuban Characteristics and its Resonance with Emerging U.S. Approaches to Trade and Politics

(Pix © Larry Catá Backer 2016)

Cuba made the news recently when if offered to pay back a small Cold War era obligation it owed to the Czech Republic not in cash but in kind. More specifically, Cuba sought to repay a roughly £222m debt by an equivalent value amount of its high shelf Rum--Havana Club.

The discussion in the Western press is dismissive. A typical example follows: Cuba offers to pay back £222m of Cold War-era debt to the Czech Republic in rum. Others may be found here, here, and here. Yet there is more to this story than meets the eye. And indeed, the effort by the Cubans serves as an expression of a well developed set of principles of regional and bilateral trade that Cuba has developed since the start of the 21st Century. Those principles include state to state bargains, sometimes of uneven value and marked by non-market based transactions that are meant to foster development of each of the participating states. These forms of transactions can be grounded in barter transactions that serve a development objective. And as the administration of the 45th U.S. President reshapes U.S. trade policy, this approach to bilateral trade may become more of a standard for states that have little else to offer.

The text of Cuba offers to pay back £222m of Cold War-era debt to the Czech Republic in rum follows. This post then briefly considers the principles that might underlie this offer of debt repayment through rum and offers a suggestion why, under some circumstances, the idea might merit further study (even if this particular barter offer was not worth accepting by its own terms).

Cuba offers to pay back £222m of Cold War-era debt to the Czech Republic in rum

The Czechs currently import only around £1.6m worth of Cuban rum every year Credit: Getty

Our Foreign Staff 15 December 2016 • 8:20pm

It has long been immortalised as the tipple of gold-hungry pirates.

Now a Cuban proposal to use its trademark rum as a substitute currency could send the Caribbean nation’s Cold-War era creditors singing yo-ho-ho all the way to the bank.

The Czech Finance Ministry says Cuban authorities have proposed to pay back £222 million lent to the island by Communist Czechoslovakia in instalments of the spirit.

If that proposal becomes reality, the Czechs would have enough Cuban rum for well over a century.

According to the Czech Statistics Office, the Czechs – a nation of beer drinkers – imported rum from Cuba worth over £1.6 million last year.

Michal Zurovec, spokesman for the Czech Finance Ministry, said Prague would still prefer the debt was at least partly paid in cash

In the past, North Korea offered to repay its £8 million debt in products made with ginseng.

In 1993, Russia offered New Zealand a nuclear submarine and two MiG jet fighters to settle a $100m bill for dairy products including Anchor Butter.  

Socialist Regional Trade and the Centrality of Bartering in State to State Bilateral trade Relations:

Since the early part of the 21st Century, Cuba has sought to redefine and construct a basis for regional and bilateral trade that is distinct from that of conventional economic globalization.  It is grounded on notions that appear to be shared by American conservatives (see, e.g. here) that the basis of global trade is inherently corrupt and unfair that require more transparent and national interest enhancing objectives to serve the state willing to open its borders to trade (see, e.g., here).

These objectives, a variation of which now appears to form the heart of emerging American trade policy, also appear to form the conceptual heart of the Socialist regional trade framework envisioned by the Cuban Venezuela axis of a decade ago. As my co-author Augusto Molina and I explained in  Cuba and the Construction of Alternative Global Trade Systems: ALBA and Free Trade in the Americas, University of Pennsylvania Journal of International Law 31:679-752 (2014) (SSRN accessible HERE), the conceptual power of the Socialist Bolivarian Alliance for for the Peoples of Our America (ALBA) is based on the,
development of (1) the four anti-capitalist values of ALBA, (2) the three pillars of ALBA, and (3) the goals of ALBA. ALBA articulates four so-called anti-capitalist values around which ALBA interventions are built. These include: (1) complementary action based on the strengths that each country may possess, (2) mutual cooperation, (3) solidarity among the member nations, and (4) respect for the national sovereignty of each country. It is not clear whether these are anti-capitalist or anti-colonialist values, and more particularly whether the solidarity and action suggested is meant to be reactive—that is, deployed against the policies and interests of the United States. Thus, for example, it has become understood that the “ethos of the trade system has gradually shifted from a relatively pure focus on the elimination of protectionism and barriers to trade among the World War II victors to encompass the global lifting of standards of living.” [Dennis Patterson & Ari Afilalo, The New Global Trading Order: The Evolving State and the Future of Trade 205 (2008)]. Indeed, except for the oppositional stance within which ALBA is situated, it would be difficult to suggest that these values are not as amenable to capitalist systems.
The difference comes in the form of application of these values—targeting not markets and private activities, but mass social movement programs and state action. These are articulated through the development of a theory of stages of development to which ALBA states are committed: (1) education to inform others about the necessity for an ALBA, (2) expanding the distribution of informational material among the masses about the benefits of ALBA, and (3) to mobilize and organize concrete steps that will foster the integration of Latin American people. These were elaborated through the announcement of twelve goals to be achieved in the service of ALBA values and to foster progress through the stages of ALBA socio-political development. The goals are both programmatic and ideological. They are grounded both in the value of political expression and in the construction of a framework for implementation of specific activities to be undertaken by ALBA Member States.. It is not clear, though, that the goals, singly or in the aggregate, are of greater value for their ideological power or for their effect on the ground.

In addition to these goals, ALBA also has four major objectives that seek to weave values and implementation. The first is to promote the integration and development of Latin America through cooperation, solidarity, and unity in an effort to place the interests of the people above those of transnational capital. The second aims to promote integration agreements that develop the industrial and social infrastructures of a nation, and the region, with the goal of eliminating poverty, social exclusion and to assure better living conditions for all the inhabitants of Latin American nations. The third is to counter Neo-Liberal policies, particularly the attempt by the U.S. to create a Free Trade of the Americas, that traditionally benefit developed nations at the expense of other developing nations. The fourth is to use complementary action based on the strengths that each country may possess, mutual cooperation, solidarity, and respect for the national sovereignty of each country.

Together, these values, objectives, and goals present a unified ideological position. It serves as a basis for approaching all issues of transnational arrangements. It privileges the state against private actors. It suggests a tighter control of individuals and their arrangements by the state, and also suggests that private interests must be subordinated to the needs of the state (as understood by those in control of the apparatus of state governance). Private markets are incidental to the development of large sectors of state control. Because neither politics nor economics can be left to the private sector, and because the private sector might well serve as proxy for the interests of those states from where those private activities originate, the state-to-state arrangements must be the basis of any movement of people, capital, goods or services. Lastly, the ideological position combines a long tradition of anti-colonialism with anti-Americanism to produce an ideological system in which states are essential to combat the direct and indirect interventions of the United States (and to a lesser extent the old European colonial powers) in the development of adhering states. For many states in Latin America, this is an intoxicating mix. It serves to legitimate stronger state control over a private sector that had been relying on the development of global markets to liberate itself from local barriers to development. It shifts the power to direct markets from the private to the public sector. It provides an avenue for transferring blame to a demonized “other” against which state activity is directed. It provides a basis for the maintenance of control through the form of democratic mass movements by linking state action to the maintenance of the masses, and by so doing, marginalizing the relationship between the masses and other institutional or civil society elements.

Most importantly, this ideology preserves to states control over the nature and extent of actual arrangements with entities beyond its borders. Packaged in this form, the ideology of ALBA has become its most critically successful product.

At the heart of this anti-capitalist alternative to global trade, then, are several points in which Socialist and American trade values converge.  The first is nationalism--that is that the object of trade must be focused on enhancing national welfare, and necessarily a rejection of the notion that trade is meant to produce either multilateral synergies that are themselves of value or that global markets have a value in themselves.  Trade, then, is understood as a consequential product of, or a technique in achieving, the aspiration of national welfare maximization. In effect, the state is recentered at the heart of trade which, rather than an object in itself, becomes a means of achieving national aims.  The critical consequence is that trade acquires no special importance in national policy. It is merely a tool subordinated to more important ends.

The second is the centrality of state direction of macro-economic policy.  At the base of ALBA is a general suspicion of markets and the importance of the state as the manager of economic transactions.  IN it Socialist guide it provides a multilateral framework for substituting the market for state to state agreements regarding trade, the specific undertaking of which could then be delegated to state or non state economic actors as it suited participating states. But the basic premise--that markets have no role in shaping trade appears as powerful now in forming American approaches to trade as it does for the vestigial Socialist camp of which ALBA is a part. For a discussion of the role of markets in Western Hemisphere socialism as contrasted to the Asian socialist model see here.

The third is the principle of complementarity as the basis for bilateral trade relations.  In effect, that suggests that trade reject financial accounting based ledger mentality in valuing trade but rather to re-imagine value on a financial, societal and political basis. For American traditionalists this sounds antithetical to the most deeply held principles of consensus global trade and economic structures and operation. Yet Western markets driven economies have been moving toward the de-financialization of economic transactions in a number of respects--from adoption narrative  disclosure requirements for non financial effects of transactions to the political use of disclosure to shape business behavior beyond financial statement imperatives.

But complementarity also reflects the notion that state to state barter transactions might well provide the better grounding in socialist trade through which financial equivalence could be read in after the fact. In the Cuban and Caribbean case, this produced a number of barter transactions among ALBa states where, for example, Cuba could trade access to its doctors--who would volunteer for service abroad--for Venezuelan petroleum (Backer & Molina, Cuba and the Construction of Alternative Global Trade Systems). And it is in this context that the Cuban offer of rum for debt reduction assumes--from the Cuban Socialist perspective--an ordinary character and one consistent with its own anti-markets based notions of complementarity, nationalism and solidarity.

The fourth is the way that the principle that trade is a tool of politics is used.
ALBA seeks to invert the vectors of social and political movements back to a framework that privileged the state over all other institutions, and that sought to invest the state, and its apparatus, with a monopoly of authority over politics, society and economics. . . . Rather than continue with the existing process of transnational integration within which private multinational corporations are the main players and main beneficiaries of bilateral and multinational trade agreements, ALBA aims to construct both public markets and public multinational enterprises. ALBA would use the government apparatus as a public leveraging mechanism that can compete with and against these corporations within markets that are grounded in public rather than private incentive structures. Yet this difference is also embedded in larger global systems that remain firmly framed within dominant private and state-less system of global intercourse. That has consequences that remain to be worked through. (Backer & Molina, Cuba and the Construction of Alternative Global Trade Systems).

In contrast, emerging American trade system is grounded on advantage, though not necessarily through markets.  Control and monopoly are as valuable a set of tools of trade as markets, if the ends of nationalist enhancement are met. (see, e.g., here). Thus in both cases, trade serves as an instrument of state--it peculiar manifestations appear secondary.

The fifth is the rejection of trade multilaterialism as an instrument of regional integration. Both the Socialist approach under ALBA and the emerging American approach embrace the notion that multilateral integration that is not driven by nationalist advancement ought to be avoided.  In both cases, Cuban Socialism and American trade policy rejects the construction of an international institutional superstructure whose objectives--essentially integrationalist--might threaten either the autonomy or the nationalist aspiration of the state.  In both cases, regional alignments must reflect only those overlaps where competing national interests converge. In both cases, an autonomous international sphere, and certainly the manifestation of autonomous international organizational actors--is rejected in favor of traditional inter-intergovernmentalism.

The sixth is that trade is a tool of national economic development under the umbrella of loose political cooperation.  We have noted
ALBA presents a conscious inversion of the dominant private markets model on which contemporary trade and investment agreements are framed. However, that inversion is grounded precisely in the forms adopted for the implementation of that model and its ultimate integrationist aspirations. Both ALBA and ALADI present trade frameworks that serve as umbrellas for regional integration grounded in sector and nation specific layers of agreement that in the aggregate will achieve the desired integrative result.[1] Indeed, the partial trade agreements for which ALADI is famous is nicely mimicked by the current crop of ALBA projects—from the Bank of ALBA to the grannacional (grandnational) enterprises and efforts at monetary union. Likewise, the form of investment treaty finds echoes in PetroCaribe and even in the model of asymmetrical trading between different groups of ALBA states. The inter-governmentalism of ALBA is the hallmark of ALADI. (Backer & Molina, Cuba and the Construction of Alternative Global Trade Systems)
Trade frameworks emerge from ALBA, and likely also from the pursuit of current American policy, as a consequence of aggregated bilateralism.  That is, trade policies follow rather than lead bilateral negotiations that tend to silo state to state relations in binary arrangements for mutual advantage.  Without a framework behind them, the resulting aggregation is stable only to the extent that it is paralleled with loosely framed political bilateralism.  Otherwise, mutual advantage tends to produce both short termism and substantial long term instability in trade.  In effect, the ALADI trade model, now embraced by Socialist Cuba and the United States, appear ion both cases to sacrifice long term investment for short term transactions.

It is within this framework that the Cuban effort to trade rum for debt relief serves as the nexus point form where one can consider the substantial effects on recent changes in approach to trade and trade policy.  From the perspective of conventional globalization, the offer appears somewhat aberrational and unhelpful in the construction of trade systems that produce, through synergies, long term welfare advantages for participating national populations through markets. From a forward looking perspective, that offer reflects the character future trade-transaction based, asymmetrical, indifferent to markets, and state based. It will take some time to measure its effects, but there is little doubt that those effects--for good or ill (however that might be measured)--will be felt in short order.

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